Knowledge and power (updated)

When discussing The Political Economy of the Bailout Arnold Kling writes

Whether the economy needs a "plan," or whether the plan will help the markets, is beside the point. The plan serves to consolidate power. Four weeks ago, the Fed and the Treasury had far more power than anyone can intelligently use. Still, they came to Congress requesting more power. Then, when the bill was passed, Paulson [whom Kling refers to as the "American Mussolini"] took even more power than what it sounded like the legislation was giving

Then Kling makes the important point

We got into this crisis because power was overly concentrated relative to knowledge. What has been going on for the past several months is more consolidation of power. This is bound to make things worse. Just as Nixon's bureaucrats did not have the knowledge to go along with the power they took when they instituted wage and price controls, the Fed and the Treasury cannot possibly have knowledge that is proportional to the power they currently exercise in financial markets.

The discrepancy between knowledge and power is what Kling has called the "suits vs. geeks divide". One group has the knowledge while the other the power. In today's economy knowledge is increasingly dispersed but power is increasingly concentrated, even in the private sector, with some CEO's not understanding their own businesses. But compare this with the public sector, do politicians understand the budgets and the laws that they vote on? What do the regulators understand about the consequences of their rulings? The divide between government geeks and government suits is much greater and more dangerous. Add to this the fact that the incentives not to understand are greater in the public arena and you get, at least part of, the reason for bad outcomes in the state sector.

Update: The Free Exchange blog attacks Kling here.